Which of the following statements regarding the circular-flow diagram is true ?
Correct answer: D. The factors of production are owned by households
- A. If Susan works for BAe Systems and receives a salary payment, the transaction takes place in the market for good and services.
- B. If BAe Systems sells a military aircraft, the transaction takes place in the market for factors for production
- C. None of these
- D. The factors of production are owned by households
Explanation
Households own the factors of production, such as labor, land, and capital, and supply them to firms through factor markets. Susan’s salary is payment for labor in a factor market, while an aircraft is sold in the goods and services market.
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